It has been a bloodbath of a week for Asian equities, with Japanese equities hammered as the yen strengthened on safe-haven flows.

The risk sentiment is getting increasingly cautious as the UK referendum on Europe draws closer.

Separately, MSCI announced that it will delay the inclusion of China A-shares into the MSCI Emerging market index this morning, stating that it would like to see further improvements in the accessibility of the A-shares market.

This news may weigh on today’s market, but it’s likely to have limited impact in the long run for two reasons. First of all, MSCI inclusion is more of a ‘catalyst concept’ which induces speculation but might not necessarily be translated into a change of long-term direction of the market. Secondly, the expectation for a possible inclusion is low. The 3.5% sell-down this Monday erased the previous gains resulting from MSCI speculation. Therefore, the disappointment tends to have limited impact now.

FX
The VIX index, a popular measure of the implied volatility of S&P 500 index options, has surged by 18% since last Friday. Trading is likely to remain cautious, while demand for safe assets is strong ahead of the BOJ and FOMC meeting this week.

More volatility is probably ahead of us, as the countdown to the UK vote on whether to exit the EU is getting closer. Large exchange-rate moves are likely to spread volatility to financial markets as a whole.

The Dollar Index returned back above 95.00 this morning, as a better-than-expected US retails sales data fuelled the USD rally.

USD/JPY has tested the key support level of 105.60 before rebounding to the 106.10 area this morning. Traders are waiting for the interest rate decision by the BOJ meeting this week for a clearer outlook of the USD/JPY.  

Commodities
The WTI crude oil price continued to soften, retracing further from an eight-month high to the $47.75 area this morning. US and Canada rig counts are increasing for a second week in a row, signifying a recovering supply in the energy market. The immediate support and resistance levels are at $46.60 and $49.60 respectively.

Gold prices rallied to $1,283, getting closer to a key resistance level of $1,286, breaking above which will open the floor to $1,300.  Silver, on the other hand, has consolidated near $17.35. In the near term, demand for safe-haven assets - due to rising uncertainty - is likely to provide support for gold and silver prices.

Volatility Index July 2016

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